Severance tax bills on fast track

November 14, 2012

MARQUETTE - Sorely disappointed with a package of severance tax bills moving quickly toward State House committee hearings, the Marquette County Board voted unanimously Tuesday to reject several of the legislation's provisions and suggest changes of its own.

"There's just so many things that are bad," Jackie Lykins, deputy director of the county equalization department said of the legislation. "There's just things in it, if you get a chance to look at it, will make your head spin."

On Thursday, lame-duck state Rep. Matt Huuki, R-Atlantic Mine, introduced the bills aimed at simplifying the tax structure and decreasing high start-up costs for non-ferrous mining operations and creating an associated rural development fund for infrastructure improvements.

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House bills 6007-6012 have since been referred to the house Committee on Tax Policy, chaired by Rep. Jud Gilbert, R-Algonac. A hearing of the committee comprised of 10 Republicans and seven Democrats may take place as early as Tuesday.

State and county officials, who were scrambling late Tuesday afternoon to learn and prepare for the latest hearing scheduling developments, had anticipated no action would be taken on the bills over the next couple of weeks, allowing all sides involved to consult attorneys and experts about the legislation's tenets.

Some county officials balked the hearing date was set during firearm deer hunting season. Efforts were being made late Tuesday to convince Gilbert to postpone the session until after Thanksgiving, if possible.

The county board has scheduled a special meeting for 10 a.m. Monday in case late board action is needed before sending envoys to Lansing to testify at the committee hearing.

Michigan Department of Natural Resources Director Keith Creagh had said Gov. Rick Snyder's administration anticipated the main provisions of Huuki's bills to include a 2.75 percent severance tax, with no deductions. However, the legislation Huuki introduced allows credits for property tax previously paid on ore value. The bill also allows for deductions for certain environmental and ore transportation costs.

Creagh said that while the bills package "primarily aligns with the governor's vision," the legislation does "include some provisions (e.g. deductions) that the administration did not recommend and has not agreed to."

Under Huuki's bills, 60 percent of the severance tax proceeds would be directed to local taxing units to replace revenue currently collected under the ad valorem tax structure. The remaining 40 percent of the tax would go to the new state rural development fund.

The distribution percentages have long been a point of dispute. Lykins said a 75-25 percent split favoring locals would be necessary to properly replace local tax revenues.

County board Chairwoman Deborah Pellow said even officials from mining company Rio Tinto claimed the county would need at least a 70-30 split to be made whole in the tax distribution.

The county board voted unanimously Tuesday to request 80 percent of the tax revenue come to the local taxing units and 20 percent go to the development fund.

Commissioner Gerald Corkin said the severance tax should be in lieu of ad valorem and so its proceeds should come to the locals.

"When we ask for an 80-20 split, we're being generous," Corkin said.

Creagh said in a letter Tuesday, Rio Tinto's paying $4.3 million in property tax this year - extrapolated over an average expected seven-year lifespan of the mine - would generate just over $30 million in property tax. Comparatively, he said under the proposed 60-40 percent split, severance tax would generate about $70 million, with $42 million going to the locals.

"The revenue projections assume the transportation deductions proposed by Representative Huuki will be eliminated during the legislative process," Creagh said.

In its vote Tuesday, the county board also wanted the deductions and credits eliminated, the schools funding sections of the legislation rewritten and Rio Tinto's Humboldt Mill kept under ad valorem.

Humboldt Township Supervisor Joe Derocha said the mill is not physically connected to Rio Tinto's Eagle Mine and will perform milling operations only. Derocha said the mill has remained under ad valorem through five owners since 1978.

Pellow said county officials have entertained the idea of having their own draft bill written for consideration, but are awaiting recommendations from attorneys hired at Miller Canfield, who are exploring several tax questions, including the original valuation of the Eagle Mine ore body, on the county's behalf.

At $191 million, that valuation was set by the state geologist in February and has been disputed since.

Commissioner Nick Joseph said despite unfulfilled promises from the administration and lawmakers, county officials are still willing to work with them.

"Christmas is coming," Joseph said. "They're going to get everything they want and Marquette County residents are going to get all the coal I foresee black coal in my stocking."

Calling Huuki's legislation "garbage," Commissioner Michael Quayle said the county has provided anything state officials requested, while county inquiries have been met with delays or denials.

Quayle predicted passage of the legislation in the house before the end of the month and full legislature before Christmas. He said he thinks mining company officials wrote the legislation because the bills favor them.

"I don't think anybody could make me believe Representative Huuki wrote this bill," Quayle said, adding that he doesn't trust the governor, his staff or Rio Tinto. He doesn't think the objectionable provisions of the bills will be removed as Creagh suggests.

"We are in this alone," Quayle said.

Commissioner Paul Arsenault said the county needs to continue to pursue the issue with simultaneous political and legal efforts.

"We need to take action now," Arsenault said.

Pellow said county officials have met with Sen. Tom Casperson, R-Escanaba, Rio Tinto and township officials over recent days.

"As long as it (the bill) is in committee, we have an opportunity to change it and we need to get engaged," Pellow said. "We're pursuing every avenue possible."